401(k) vs Roth IRA — Where Should Your First $20K Go?

401(k) vs Roth IRA

401(k) vs Roth IRA — Where Should Your First $20K Go?

Both are tax-advantaged. The choice comes down to your current tax rate, employer match, and future income expectations.

Verdict

Take the 401(k) match first (free money), then max the Roth IRA ($7,000 in 2026), then return to 401(k). If your employer offers no match, Roth IRA first.

Side-by-side comparison

 401(k)Roth IRA
Contribution limit (2026)$23,000$7,000 ($8,000 age 50+)
Tax on contributionPre-tax (deduct now)After-tax (pay now)
Tax on withdrawalOrdinary incomeTax-free
Employer matchOften yesNo
Income capNonePhased out >$161K (single)
Required Minimum DistributionsYes at 73No (lifetime)
Best forHigh current tax bracketLower current bracket / younger investor

Who should pick 401(k)

High earners in the 32%+ bracket who want a tax deduction now, anyone with a 401(k) employer match, and those expecting a lower retirement tax rate.

Who should pick Roth IRA

Younger workers in 12-24% brackets, anyone expecting higher future income, those wanting tax-free legacy money for heirs, anyone uncertain about future tax-law changes.

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Disclaimer. Comparison numbers depend on your tax bracket, state, and time horizon. Educational only — not personalized financial advice. See our Financial Disclaimer.

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